Glofinco v Absa Bank Ltd. t/a United Bank (135/2001) [2002] ZASCA 91 (30 August 2002)

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[2002] ZASCA 91
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Glofinco v Absa Bank Ltd. t/a United Bank (135/2001) [2002] ZASCA 91; 2002 (6) SA 470 (SCA) (30 August 2002)

THE SUPREME COURT
OF APPEAL
OF SOUTH AFRICA
Case number : 135/2001
REPORTABLE
In the matter between :
GLOFINCO
APPELLANT
and
ABSA BANK LIMITED t/a
UNITED BANK RESPONDENT
CORAM : NIENABER,
SCHUTZ, ZULMAN, FARLAM and NUGENT JJA
HEARD : 20 MAY 2002
DELIVERED : 30 AUGUST
2002
Summary : Estoppel -
whether a bank is estopped from disputing liability when one of its
branch managers, without authority to do
so, guaranteed a series of
post-dated cheques in the name of the bank.
_________________________________________________________
JUDGMENT
_________________________________________________________
NIENABER JA/
NIENABER JA
:
[1] This
Court, in two recent and related matters,
NBS Bank Ltd v Cape
Produce Company (Pty) Ltd and Others
2002 (1) SA 396
(SCA) and
South African Eagle Insurance Company Ltd v NBS Bank Ltd
2002
(1) SA 560
(SCA), considered the liability of a commercial bank for
unauthorised transactions concluded in its name by one of its local
branch
managers. In each instance the bank was held liable because
of the aura of authority with which it enveloped its branch manager,
causing a variety of investors to believe that they were dealing with
the bank when in truth they were dealing with the branch manager.

That is but another way of saying that the bank was held to be
estopped from denying its branch manager’s lack of actual
authority.
This is an analogous case turning, on different facts, on
the same point of law (cf Rabie and Sonnekus,
The Law of Estoppel
in South Africa
2 ed 159-161).
[2]
Ms Franca Horne, the then manager of the Balfour Park branch of the
United Bank, a division of the respondent (‘the Bank’),
endorsed,
ostensibly on behalf of the Bank and under the words, ‘Bon pour
aval as surety and co-principal debtor in solidum’,
each one of a
series of five post-dated cheques with a total face value of
R5 043 166.54. The cheques were drawn on the
Bank by a
then still highly regarded and trusted customer of that branch
office, Playtime International Holdings (Pty) Ltd (‘Playtime’),
in favour of the appellant (‘Glofinco’), a partnership
specialising in the discounting of post-dated commercial cheques. Ms
Horne’s trust in Playtime and its owner, a Mr Dreisenstock, proved
to be badly misplaced. Both were about to go bankrupt. Glofinco
duly
presented the first of the cheques to the Bank for payment. By then
Horne had resigned her position. Her successor as branch
manager
promptly dishonoured the cheque for non-payment and marked it
‘refer to drawer’. This led to the current action against
the
Bank, initiated by Glofinco by way of provisional sentence
proceedings and culminating in a trial before Lewis J in the
Witwatersrand
Local Division. The Court
a quo
refused relief
but granted Glofinco leave to appeal to this Court. The judgment has
been reported
sv Glofinco v Absa Bank Ltd (t/a United Bank)
2001 (2) SA 1048
(W).
[3] There is a history to
the series of cheques on which the action was founded. Glofinco was
approached on five separate occasions
to discount cheques drawn by
Playtime. The approach was on each occasion made by a certain Mr
Ferrer who ran a business known as
the ‘Jewellery Club’. Ferrer
was well known to Mr Alan Braude, one of Glofinco’s two partners.
He was, on each occasion,
accompanied by Dreisenstock.
[4] The
first approach
was in April 1997. Braude was requested to
discount a series of post-dated cheques. Playtime, so he was told,
imported Aiwa electronic
products and Singer sewing machines. To
enable it to do so it needed finance. The cheques Glofinco was asked
to discount were not
made out to Playtime as payee but were instead
drawn by Playtime in favour of the Jewellery Club. Braude made his
own enquiries
about Playtime. He telephoned Horne who gave Playtime
a glowing credit reference and a high credit rating. Braude was
still not
satisfied and despite a visit from Dreisenstock who handed
him a letter from Horne, addressed to Dreisenstock himself and
commending
Playtime for the exemplary manner in which it conducted
its account, Braude declined to purchase the cheques offered to him
on that
occasion.
[5] The
second approach
by Ferrer and Dreisenstock was in June 1997.
Three cheques, post-dated 4, 11 and 18 August 1997, and drawn by
Playtime in favour
of the Jewellery Club, each for R210 000,
were offered to Braude. Braude expressed some interest provided the
cheques were
guaranteed by the Bank. On 20 June 1997 Ferrer and
Dreisenstock returned with each cheque endorsed on the reverse side
by Horne
on behalf of the Bank. Copies of the cheques, duly met on
presentation, were not available at the trial and Braude could not be
certain that the endorsements went beyond the words: ‘good for
funds’. In addition he was asked to discount a fourth cheque
for
R122 000, drawn by a certain Mr Wobbe. The face value of the
three Playtime cheques together with the Wobbe cheque totalled
R752 000. Braude telephoned Horne and she assured him that the
endorsements by the Bank were regular. All three cheques were
additionally endorsed as sureties and co-principal debtors by
Dreisenstock and by Ferrer, in his personal capacity as well as on
behalf of the Jewellery Club. Thereupon, on 20 June 1997, Braude
drew a cheque for R712 955,12 in favour of the Jewellery Club.

All four cheques were duly met on presentation so that there was no
need for Glofinco to resort to the Bank.
[6] The
third approach
was in October 1997. Seven post-dated cheques,
drawn by Playtime in favour of the Jewellery Club, with a total face
value of R4 413 120
were offered to Braude for discounting.
The due dates of these cheques stretched in monthly sequence from
October 1997 to May 1998.
The cheques were similarly endorsed by
Horne on behalf of the Bank. Braude once again telephoned Horne and
she once again assured
him that the cheques would be met, either by
Playtime or by the Bank. After obtaining further endorsements from
Ferrer, the latter’s
wife and Dreisenstock, each signing as surety
and aval, Braude, on 14 October 1997 drew a cheque for R3,6 million
made out to the
Jewellery Club.
[7] The
fourth approach
by Ferrer and Dreisenstock was in November
1997. The request on this occasion was for the discounting of a
cheque of R2 million
post-dated to 1 June 1998, drawn by Playtime in
favour of the Jewellery Club. Once again Braude insisted on
confirmation by Horne
that the Bank would pay if Playtime did not.
Horne wrote him a letter, dated 13 November 1997, in which she gave
the following undertaking
on behalf of the Bank:
‘
In the event of
Playtime International Holdings (Pty) Ltd not meeting these cheques
on due date for any reason whatsoever, the bank
hereby undertakes to
make good to Global Finance [a reference to the appellant] the unpaid
amounts within 24 hours of notification.”
Braude thereupon agreed
to discount the cheque of R2 million and on 17 November 1997 drew a
cheque, payable to the Jewellery Club,
in the sum of R1 613 369,98.
[8] The
fifth approach
occurred in March 1998. At that stage all the cheques discounted in
June 1997 and five of the seven cheques discounted in October
1997
had been duly and regularly met. Two cheques from the October and
the one cheque from the November discounting, totalling well
in
excess of R3 million, were still outstanding. The fifth approach was
for five further cheques totalling R5 043 166,54,
all drawn
by Playtime, to be discounted. These cheques, unlike the earlier
ones, were drawn in favour of Glofinco. The due dates
stretched from
the end of July in monthly sequence to the end of November 1998. All
five cheques were endorsed by Ferrer in his
dual capacity, as before,
and by Dreisenstock, as sureties and co-principal debtors. The
further events during that period are described
by the Court
a quo
as follows, at 1054F-1055E:
‘
Each cheque was also
stamped on the back with the ABSA Bank/United Bank stamp, which
had printed on it the words “
Bon pour aval
as surety and
co-principal debtor
in solidum”
. Underneath appeared two
signatures, those of Horne and of Bell [Marilyn Bell, a sales manager
at the branch] above the printed
words “Authorized Signature”.
Beneath these words were written the authorisation numbers of each of
the signatories, preceded
by the letter “A”. Beneath the
signatures and numbers, the date of the cheque was also inserted.
There was in addition, on
the back of each cheque the personal stamp
of Horne, on which was printed her name, followed by “Branch
Manager, United Bank, Balfour
Park Branch, A14560”. Braude
telephoned Horne in the presence of Ferrer and Dreisenstock, and
asked whether the cheques would
be met and whether the guarantee was
“a good one”. She advised that everything was in order. He
nonetheless asked her to confirm
in writing that the undertaking by
the bank as surety and co-principal debtor was “in order” and
that the bank would make good
any non-payment on 24 hours’ notice.
She agreed to do so and faxed a letter to this effect to the
plaintiff.
Braude was not fully
satisfied with the letter, he said, because the bank had not
expressly waived the benefit of excussion, and
because he had not
seen Horne sign personally. He thus telephoned her again, in the
presence of Ferrer and Dreisenstock, and asked
her to sign an amended
letter in his presence. She agreed to visit the plaintiff’s office
later in the day. Braude advised Ferrer
and Dreisenstock that if she
signed the letter as required the plaintiff would enter into the
transaction.
Braude met Horne for the
first and last time when she arrived at the plaintiff’s office
later in the day. She wrote on the letter
she had sent earlier the
words “we hereby renounce the benefit of excussion” and signed it
in front of Braude. She also wrote
on the back of each cheque “we
hereby renounce the benefit of excussion” and signed each again
after these words.
Braude took the
opportunity to ask her again, “in depth” about her credentials.
She “satisfied” him that she was a senior
bank manager who had
the requisite authority to bind the bank. When testifying, Braude
said that he had also been satisfied with
Horne’s explanation,
proffered when she came to his office, why the bank was not itself
assisting Playtime with finance. Her explanation,
given also on the
phone previously, was that the company was involved in huge
international transactions; that she was controlling
the flow of
funds; and that it was more convenient for the bank to guarantee a
payment by Playtime than to advance the money itself.
He did not
comment on the submission by counsel for the bank that Horne was
actually doing its valued client, Playtime, a disservice
by assisting
it to obtain finance at a very high rate of interest. She had,
Braude said, allayed any suspicions he might have had.
On the same day Ferrer
collected a cheque drawn by the plaintiff in the sum of
R4 115 907,39. The discount - the amount
charged by the
plaintiff - was thus some R927 259.’
[9] The above version
represents Glofinco’s side of the story. The Bank’s side was
never told. That was because Horne (who resigned
her position at the
Bank when informed that disciplinary proceedings were pending against
her and who was embroiled at the time in
a delictual action for
damages brought against her by the Bank) was clearly uncooperative
towards the Bank and refused to testify
on its behalf. (Horne in
fact brought an urgent application for leave to intervene as a party
to the present action but the application
was rightly refused by the
Court
a quo.
) Why Horne acted as she did, whether it was for
nefarious purposes of her own or because she believed that she was
furthering the
interests of the Bank or of her branch, one simply
does not know. Bell, although still in the Bank’s employ, was
not called
as a witness. Her position was also not clear-cut. In
the affidavits filed on behalf of the Bank in the provisional
sentence proceedings
it was alleged that her signature on the cheques
had been forged. The denial that she had signed the cheques was,
however, without
explanation later withdrawn. The upshot is that
there is no evidence to contradict that of Braude as to how events
unfolded. The
matter is to be dealt with on that factual basis.
[10] What the Bank did
succeed in proving was that neither Horne nor Bell had the requisite
authority to commit the Bank to the guarantees
that were issued in
its name. Horne’s credit mandate, as bank manager, was expressly
limited to R75 000 of which at most
50% could be unsecured.
Bell, a sales manager, had no authority to bind the Bank to any
guarantees ostensibly issued on its behalf.
[11] The issue, then, is
whether the Bank, by its own conduct, caused Braude to believe that
Horne was authorised to bind the Bank
in the manner she professed to
do, that is to say, whether the Bank was estopped from repudiating
liability on the grounds that she
purported to guarantee, in the name
of the Bank, a series of post-dated cheques as surety and aval in
amounts far exceeding the upper
limits of her authority to extend
credit.
[12] The requirements for
holding a principal liable on the basis of the ostensible authority
of its acknowledged agent were recently
articulated in
NBS Bank
Ltd v Cape Produce Company (Pty) Ltd and Others
,
supra,
in
para 26 at 412C-E by Schutz JA to be:
‘
1. A representation by
words or conduct.
2. Made by the
[principal] and not merely by [the agent] that he had the authority
to act as he did.
3. A representation in a
form such that [the principal] should reasonably have expected that
outsiders would act on the strength of
it.
4. Reliance by [the third
party] on the representation.
5. The reasonableness of
such reliance.
6. Consequent prejudice
to [the third party].’
I proceed to discuss the
first two of these requirements with reference to the facts of this
case.
[13] A representation, it
was emphasised in both the
NBS
cases,
supra,
must be
rooted in the words or conduct of the principal himself and not
merely in that of his agent (
NBS Limited v Cape Produce Company
(Pty) Ltd
,
supra
at 411H-I). Assurances by an agent as to
the existence or extent of his authority are therefore of no
consequence when it comes
to the representation of the principal
inducing a third party to act to his detriment. In the instant case
counsel for the appellant
relied principally on the very appointment
by the Bank of Horne as its branch manager, thereby enabling her to
impress upon Braude
that she was duly authorised, when in fact she
was not, to commit the Bank to stand surety for Playtime’s
post-dated cheques; this
impression was reinforced, so it was further
contended, by the fact that eight earlier cheques of Playtime that
Horne had marked
‘good for funds’ had been met by the Bank by the
time Horne stood surety on its behalf for the last of the series of
cheques.
[14] As was pointed out
in both the
NBS
judgments,
supra,
the appointment of
someone to a position of authority, albeit in a subordinate position
but with all the trappings pertaining to
the post, is a factor that
in itself is not to be underestimated (
NBS Limited v Cape Produce
Company (Pty) Ltd
,
supra
, at 410C-D; 413B-D; 414C-D and
G-H.) Thus it was stated, apropos a branch manager, by Marais JA in
the
SA Eagle Insurance Company Ltd
case,
supra
, at
574E-G:
‘
The establishment of
branches was plainly to facilitate convenient access by the public to
it as an institution and to encourage the
public living in the area
concerned to make use of conveniently situated branches. These
branches were the public face of the institution
and they were
intended by respondent to be so regarded. There was no suggestion
by respondent that its branches were not intended
to be available to
the public for certain classes of lending and borrowing and that it
made that generally known. There was no publicly
proclaimed or
advertised policy of dealing with transactions of a particular
magnitude only at its head office. The branches were
held out by
respondent as the places to which anyone wishing to deposit money
with it could and should repair. The branch manager
was held out to
be the person clothed with the most authority at a branch by his very
designation as branch manager.’
Of course that does not
mean that a bank is liable to a third party
ex contractu
for
all the actions and transactions of the branch manager when the
latter is in truth minding not the bank’s business but his
own.
The
NBS
judgments dealt with the branch manager receiving
substantial deposits ostensibly on behalf of the bank; the instant
case is concerned
with a branch manager purporting to bind the bank
in the future as surety and co-principal debtor on a series of
post-dated cheques.
As Marais JA pointed out at 573H-574B of his
judgment, in dealing with of the scope of a branch manager’s
authority to bind a
bank:
‘
That is, of course, a
question of fact to be decided on a balance of probability. It is
not reducible to the question, posed
in vacuo
, of whether a
branch manager of a business has apparent authority to bind the
business nor is it a question which lends itself to
a generalised
answer. The branch manager of a fast food outlet cannot be regarded,
simply because of his appointment as such, as
having been held out by
the proprietor of the chain of outlets as having authority to open a
new branch, to buy or hire premises
for it, or to engage staff for
it.
That is because these activities are so patently not within
the ordinary purview of such a manager
. On the other hand, the
manager of a business the sole activity of which is the buying and
selling of used motor vehicles may well
be justifiably thought to
have been empowered by the proprietor to negotiate purchases and
sales for that is the manager’s publicly
proclaimed
raison
d’etre
. (
Reed NO v Sager’s Motors (Pvt) Ltd
1970 (1)
SA 521
(RA).) In each case, it is the particular facts which will
provide the answer’ (my emphasis).
[15] The appointment by a
bank of a branch manager implies a representation to the outside
world. The representation, to the knowledge
of the bank, is that the
branch manager is empowered to represent the bank in the sort of
business (and transactions) that a branch
of the bank and its manager
would ordinarily conduct. The notion of ‘ordinary business’ in
turn implies a qualification in the
form of a limitation: that the
branch manager is
not
authorised to bind the bank to a
transaction that is not of the ordinary kind. What the ordinary kind
of business of the branch
is remains a matter of fact and hence of
evidence. There is this passage in the evidence of Strang, the
expert witness called by
Glofinco on banking practise:
‘
Now would you tell
M’Lady, as a general proposition, what the functions and duties of
a bank manager are or a branch manager, in
your experience. -- It was
the operation side of the branch but I think the more importance I
had, the more interesting is the credit
lending side and that
encompassed many ways of lending money to clients or facilitating
their finance … The most common is overdrafts,
that I think is the
one people know best. There are … loans, fixed loans. There can
be local finance, there can be off-shore
finance. There is finance
relating to foreign exchange transactions where the bank will add a
surety to the transaction under letter
of credit or under bill of
exchange. It is really one’s imagination that it is what one can
do.’
The
last sentence is overstating the position if the imagined method
would be unorthodox and speculative. A branch manager clearly
does
not have, nor can he reasonably be believed by anyone to have, a free
hand to bind the bank at will. His authority to do so
is not
unlimited both as to the nature and the extent of the business he
purports to transact in the bank’s name.
[16] Such
limitation can be either internal or it can be implicit. It is
internal if it is imposed on the functionary concerned by
his
conditions of service or by higher authority in the bank’s
hierarchy. It is implicit in the sense mentioned in para [15] above:
he can bind the bank only if it is normal and usual for someone in
his position to do so. An outsider dealing with a branch manager
is
entitled to assume that the latter’s functions encompass, but do
not exceed, the activities that a branch manager would commonly
be
known to perform. By its appointment of Horne as the manager of its
Balfour Park branch the Bank created the impression that
she was its
representative in all its commonplace and routine dealings with
customers and other members of the public; and that,
as the top
official in the branch, she was empowered to transact all types of
business on its behalf, but no more, that the Bank
would ordinarily
entrust to that branch.
[17] Internal limitations
of which outsiders who do business with the branch manager are
unaware will not bind them. This is a principle
as old as the law of
agency itself. So, for example, counsel for the appellant referred
to the Digest 14.3.11 which, in translation
(that edited by Watson),
reads as follows:
‘
2. No one is treated
as a manager if public notice has been given in writing that
contracts are not to be made with him, It is not
that the
would-be-contractor needs permission, but that the person wanting to
avoid contracts should prohibit it; for otherwise
the mere fact of
appointing the manager will lead to liability. 3. By “public
notice” is meant a notice in writing, clearly
visible and easily
read, in the open, for example, in front of the shop or the place of
business, not hidden away but on display.
Should the notice be in
Greek or Latin? It depends on the locality; no one should be able
to claim that he did not know what the
notice said. Certainly, if
the notice was posted openly and was widely read, no one will be
heard to say that he did not see it
or know what it said. 4. But
the notice has to be there permanently. An action for the manager’s
conduct will lie if the notice
was not on display when the contract
was made or if its text had been effaced. Thus, the owner of the
shop will be liable if the
notice he put up has been removed by a
third party or has collapsed through age or been obscured by bad
weather or something like
that. But if the manager himself took down
the notice with fraudulent intent, the loss from his fraud must fall
on the person who
appointed him, unless the contractor also was party
to the fraud. 5. The terms of the appointment should be respected.
For example,
the person making the appointment may have wished the
manager to enter transactions only on certain terms or with the
approval of
a particular person or if security was given or only
within a certain limit. The fairest thing is to abide by the terms
of the appointment.
Likewise, a person who has appointed several
managers might wish transactions to be concluded by all of them
together or by one
of them on his own. No one should be suable for
the conduct of a manager by a person he has told not to do business
with him; for
we are entitled to prohibit dealings with a particular
individual or with a given class of people or tradesmen and yet
permit dealings
with others. But a person who keeps changing his
mind and forbids contracts to be made now with one person and now
with another
will be liable in all cases; for it is wrong to confuse
one’s contractors. 6. A person who has been forbidden to contract
altogether
is not treated as a manager at all; his role is rather
that of a storeman than of a manager, so he will be unable to sell
even two
bits of merchandise from the shop.’
[18] It may of course be
impractical and even stultifying to business to advertise the
internal limitations that are placed on a branch
manager’s
authority to act on behalf of the bank. But that is a calculated
risk a bank or any other organisation seeking to curb
the authority
of its officials to bind it, must of necessity run. In the ordinary
course of events the risk is perhaps not as great
as it seems since
officials are as a rule honest rather than dishonest and would
observe rather than disregard restraints on their
given powers; so
too, because an organisation’s own internal systems of control are
designed to anticipate or impede transgressions
by maverick
functionaries. But when, in the exceptional case, it does happen
that an official oversteps the mark without prompt
detection, as
happened in the
NBS
cases and indeed as happened in this one,
the consequences for the organisation may well be calamitous. If
such an organisation
is unable (by means of insurance or otherwise)
to shift or spread the risk it created by appointing and not
monitoring the activities
of someone who in the event proved to be
unsuited to hold a position of financial responsibility it must
itself assume and absorb
it (cf
Randbank Bpk v Santam
Versekeringsmaatskappy Bpk
1965 (4) SA 363
(A) at 372D-F).
[19] In the instant case
Horne’s authority was expressly limited. Braude was unaware of the
internal limitations placed on Horne’s
authority to burden the bank
beyond R75 000. That limitation therefore does not count. I
accordingly return to the other type
of limitation mentioned above,
the one that was implicit to Horne’s position as a branch manager.
[20] The issues on this
part of the case are twofold: first, whether the transactions on
which Glofinco relies can be said to fall
within the parameters of
‘ordinary branch bank business’ of a large commercial branch;
secondly, whether Braude on behalf of
Glofinco realised that the
transaction in question was not of such a kind. Since a
representation, to be one, must speak to the
representee and since
the representation is that the branch manager is empowered to
transact only ordinary branch business, no representation
is made if
the representee is aware that the transaction he is engaging in is
not of the kind a branch manager will ordinarily transact
with an
outsider.
[21] The
argument for Glofinco can be reduced to a syllogism: what Horne did
was to guarantee a series of cheques on behalf of the
Bank; the
guaranteeing of a customer’s cheques on behalf of the Bank is part
and parcel of a branch manager’s everyday duties
and as such
constitutes ordinary banking business; hence the guaranteeing of the
cheques in question fell squarely within the scope
of Horne’s
ostensible authority.
[22] That,
in my view, is an oversimplification of the problem. I say so for
three reasons. The first is that the transaction in
question,
properly analysed, is not a simple performance guarantee by the
branch of a cheque issued by its customer; it is standing
surety for
a customer’s post-dated cheques in anticipation, so it was
explained to Braude by Horne, of funds about to flow into
the account
some time in the future. The second is that there is no evidence
that the transaction fell within the category of what
may be termed a
bank’s ‘usual business’. The third is that Braude fully
appreciated that Horne was engaged in a type of activity
that was not
usual for a branch manager to conduct. I deal with these points in
the paragraphs that follow.
[23] The Bank in this
case was not simply guaranteeing the debts of an esteemed customer.
The transaction in question was a peculiar
one which must be assessed
against its own background and on its own terms. The following
points need to be stressed:
(1) There
was no evidence, not even of a hearsay nature, about the business
relationship between Dreisenstock of Playtime and Ferrer
of the
Jewellery Club. Neither of them testified. Certainly there was no
suggestion that the previous cheques by Playtime to the
Jewellery
Club were related to the supply of electronic or other goods that
Playtime was supposed to import.
(2) The entire
transaction was implemented on 5 March 1998, at one and the same
time. Glofinco was handed the post-dated cheques,
made out not to
the Jewellery Club but to it, and endorsed by Horne and Bell on
behalf of the Bank. The face value of the cheques
was R5 043 166.54
for which Glofinco thereupon issued a cheque for R4 115 907.39
to the Jewellery Club. The
difference amounting to some R927 259
was said to generate a percentage of profit of approximately 40% p.a.
What the true nature
of the underlying transaction, the fate of the
funds so paid out or the arrangement between Playtime and the
Jewellery Club was,
one simply does not know.
(3) What one does know
is that this was a money lending transaction of some sort or another
and not the discounting of a trade bill
or the guaranteeing of a bill
of exchange owing to a foreign creditor. Barker,
The Principles
and Practice of Banking in South Africa,
3 ed 537, defines a
trade bill as ‘a bill made to liquidate an actual trade
transaction, as distinct from an accommodation bill’.
What the
Bank was here guaranteeing, if the transaction is to be upheld, was
nothing of the sort.
(4) On analysis these
were neither discounting nor factoring transactions. The bank
assumed a liability as surety and aval in respect
of debts payable
some time in the future, the nature of which cannot be determined on
the evidence.
(5) At the time
Playtime was operating on an overdraft of R3 million from the Bank.
It went into liquidation, on its own application,
the day before the
due date for the first of the last series of the cheques
ie
in
July 1998. It is a fair assumption that there were no, or at the
very least insufficient, funds in the account in March 1998
when
Horne committed the Bank to the future repayment of the post-dated
cheques in the event of Playtime being unable to meet them
and that
Horne must have known that there was no certainty that funds would be
available when the various cheques fell due for payment
some months
later.
(6) Whereas
previous cheques appear to have been marked ‘good for value’ the
last series of post-dated cheques was guaranteed
by Horne and Bell on
behalf of the bank, stamped with a specially procured stamp made at
Horne’s instance during January 1998,
and marked ‘Bon pour aval
as surety and co-principal debtor in solidum’.
(7) A financier in
Glofinco’s position would invariably operate at margins
significantly higher than those charged by banks because
of the risks
involved in transactions of this nature. In this instance, as a
result of the Bank’s interposition, that risk, if
the Bank is to be
held liable, was entirely eliminated. It was debated with Braude
why the bank, if it was satisfied to assume
such risk, was not
prepared to extend to Playtime overdraft facilities to cover such a
loan. Understandably enough Braude could
give no sensible answer
because there does not appear to be one. Quite apart from the fact
that the transaction held no profit for
the Bank it in fact deprived
it of the opportunity of earning the finance charges it would have
earned had the loan been made to
Playtime by the Bank itself.
(8) While
the Bank assumed the entire risk it obtained no corresponding
advantage. It was suggested that there was some advantage
to the
branch inasmuch as Playtime was its largest and most active foreign
exchange customer, but that begs the question whether
it was normal
business for a bank manager to place the Bank at risk to the extent
she did ie without certainty as to the sufficiency
of funds, which
the Bank was supposed to control, to cover the particular advance.
Such control could only be exercised if the right
to payments for the
sale of goods imported by Playtime was ceded to the Bank. Of that
there was again not the remotest suggestion
in the evidence. Nor was
there evidence that the cession of book debts in respect of future
payments was a recognised and normal
means of securing the
guaranteeing of post-dated cheques by the Bank.
(9) The transaction so
concluded was patently inimical to the Bank’s financial and
commercial interests. It is difficult to envisage
how a transaction
that is demonstrably harmful to a bank can be regarded as part and
parcel of normal banking practice and hence
of a bank manager’s
ordinary functions. Whichever way it is viewed the transaction was
not an ordinary and routine one which a
branch manager would
conclude ‘in the ordinary course’ and without special
authorisation.
[24] I turn to the actual
evidence as to the normalcy or not of Horne’s dealings with
Glofinco. Banks, Braude readily conceded,
did not undertake ‘this
practice’ of discounting post-dated commercial cheques; such
business was ‘treated in a completely
different manner’ by them.
He was asked:
‘
How would a bank go
about it, a commercial bank? -- My lady what a commercial bank might
do is if they had a client in good standing,
and the client had a
cheque that he had received for goods and services that he had
rendered to a third party he could give that
cheque to the bank, who
would hold it as security and perhaps issue him an overdraft up to a
certain value relative to the cheque.
In some cases 50%, in some
cases maybe 70%, but usually the banks would do it on that basis.’
That
of course deals with the situation where the bank’s customer is a
creditor. In the instant case the Bank’s customer (Playtime)
is a
debtor. There was no evidence, from either Braude or Strang or
Scholtz (the banking expert called by the Bank), that it was
customary at the time for banks to stand surety for a customer’s
post-dated cheques payable months later. In particular the series
of
transactions in the form analysed above was never debated with either
of the two expert witnesses. When something along those
lines was
obliquely put to Strang in his evidence-in-chief he said: ‘I cannot
say it is unusual’ but when asked under cross-examination,:
‘
Now as at 5 March 1998
then, we had a credit facility of R1½ million. Now if you are
the bank manager at that stage with your
client Playtime asking you
to sign cheques for R5 million, five cheques for R5 million odd,
dated at various dates in the future
for some eight months, could you
do that?’
he
replied:
‘
No, this is what
surprises me, that you have got two officers of the bank who did sign
it. That I cannot understand.
And now if we look at the
transaction, are you aware of the circumstances of this R5 million
transaction. -- No.
Now let me inform you as
to how I understand it to be, it is the Jewellery Club represented by
its Mr Fedder, approaching the plaintiff
in this matter Global
Finance with a request to discount cheques to an amount of R5 million
and according to the proposed transaction,
there would be an interest
rate of very near to 40% on this transaction. Now is that, just on
those grounds, is that the sort of
transaction which a bank would
involve itself in? -- Not normally, certainly not.
It would certainly be
very unusual for the bank? -- Yes.’
Scholtz,
the bank’s witness, was asked, in evidence-in-chief:
‘
Nou die aard van
hierdie transaksie, het u enige standpunt daaroor? -- In die eerste
punt wil ek sê ons vind hierdie transaksie
buite normale bank
praktyk. In ons opinie is die transaksie abnormaal in die sin van as
die bank wel hulle endorsement, as ons daarby
verplig of verbind sou
gewees het en die geld lener sou dit gesien het as 'n ten volle
versekerde transaksie van sy kant af, dan
kom die eerste vraag by my
op, hoekom sou die bank dan nie eerder die geld aan mnr Dreisenstock
geleen het nie. Want ons het uit
hierdie transaksie was die bank se
opbrengs nul, ons het niks gekry nie.’
His
evidence, as I read it, is to the effect that Horne was not entitled,
without explicit authority from head office, to compromise
the Bank’s
position in this manner by standing surety for a series of post-dated
cheques in amounts far in excess of her limits
for extending credit.
It goes to both the nature and the extent of her intercession in the
name of the Bank.
[25] Braude’s
own evidence was that he confronted Horne about the reason why the
Bank was not itself lending the money to Playtime
instead of via
Glofinco at a much higher rate of interest, when Playtime was at once
so highly regarded by her and had access to
sufficient funds to
ensure the repayment of the amounts advanced to it. He himself, so
he said, thought that ‘Mr Ferrer was in
some way involved with Mr
Dreisenstock with the importation of these goods’ but not as a
supplier thereof.
‘
For all you know this
was just for extra credit facilities over and above the existing
overdraft facilities? -- That is possible my
lady.’
He
did not think it necessary to enquire further into the mechanism of
the transaction between Playtime and the Jewellery Club. But
when
Horne was introduced to him he nevertheless questioned her. She
informed him:
‘
that in view of the
complicated structure the bank controlled the flow of funds coming in
and that is why she had absolutely no problem
in saying that there
would be funds available on the dates that the cheques were due …’
Strang,
on being asked about this explanation in his evidence-in-chief, said:
‘
I find it difficult to
comment frankly really. As a banker, if I receive the explanation
from Ms Horne, I would have had difficulty
in listening to it. But I
can understand people outside the bank not knowing the procedures and
the manner in which the banks operate,
could have accepted their
explanation.’
[26]
But Braude was no neophyte. As he himself said:
‘
My lady being involved
in the finance business for many, many years I have had considerable
experience with cheques, dealing with
banks, suretyships, guarantees,
etcetera.’
He
was aware that the Bank assumed a huge risk, indeed, that he
transferred his entire risk to the Bank in circumstances where there
was not one iota of evidence forwarded to him as to the actual extent
of Playtime’s business as an importer. The supposed advantage
held
out to him by Horne as being that of the Bank was little more than
nebulous. As the Court
a quo
remarked at 1067B-C:
‘
Her assertion that it
was more convenient to guarantee the cheques than to advance finance
was scarcely plausible.’
The
transaction, to his knowledge, was patently detrimental to the Bank’s
interests. On his own evidence Braude had misgivings,
at least
initially, about the manner in which the transaction was structured
through Horne. He sought and was given reassurances
by her. It was
not contended on behalf of the Bank that Braude had acted
dishonestly. One must therefore accept it as fact that
he believed
her. Relying on those reassurances about the authenticity of the
Bank’s supposed intervention, he issued the cheque
to The Jewellery
Club. What caused Braude to act to Glofinco’s detriment was in the
final analysis not the Bank’s representation
in appointing Horne as
bank manager but Horne’s representation to him assuaging his
misgivings about the Bank’s ultimate liability.
[27] The
above evidence falls significantly short, in my view, of establishing
the proposition that the transaction in question qualified
as a
normal or usual or customary type of transaction to which any bank
would commit itself at the instance of a branch manager.
Since this
was not an ordinary transaction, one of a kind a branch manager would
as a matter of course conclude, there was, at least
in that respect,
no representation of the Bank, as opposed to Horne’s own, as to her
authority to enter into it; consequently there
was, for the purpose
of estoppel, no representation of the Bank itself on which Glofinco
could rely in order to hold the Bank liable.
[28] The
second aspect of the representation on which Glofinco sought to rely,
as mentioned in para [13] above, was that the Bank
had in the past
met a number of similar cheques drawn on it and endorsed by Horne;
that the cheques were duly met, notwithstanding
Horne’s conspicuous
endorsements thereof purporting to bind the Bank, would have tended
to lull Glofinco into the false belief,
so it was contended, that the
cheques were regular and not subject to objection on the part of the
Bank. Counsel for the appellant
advanced this argument not as a
representation in itself but in reinforcement of his main submission
based on the mere appointment
of Horne as branch manager. In a
learned note (
Skynverwekking binne bankmilieu en estoppel
,
2001 TSAR 828)
Professor J C Sonnekus, on the other hand, relied on
it as the sole reason for saying that the Court
a quo
was
wrong in disallowing the estoppel .
[29] There
are, I believe, a number of answers to the point. The first is that
all the cheques were met in the past because there
happened to be

sufficient funds in Playtime’s account to satisfy them at the time.
The Bank was never called upon to
step in as surety and co-principal
debtor. Consequently it cannot be said that the Bank had made a
discrete representation merely
because it had not queried the earlier
cheques. The second reason is this: because the originals of the
earlier cheques were no
longer available, there was no evidence to
show that they were in the same form as the last series of cheques.
If they were simply
marked ‘good for funds’, as the evidence
suggested, and if at the time they were presented for payment there
were sufficient
funds in the account to meet them, there would have
been no basis for the Bank to have refused payment. That being so,
the payment
would not imply a representation on its part that the
Bank would in future, absent sufficient funds in the account, honour
such cheques
as surety and aval. The third reason is that there was
no evidence to show how such cheques went through the banking system
and
that other officials of the Bank would have been alerted to
Horne’s endorsement of the cheques in question. Lastly, there was
no evidence by Braude himself that he ever treated the fact that the
cheques were honoured in the past as confirmation by the Bank
that
the Bank would honour Horne’s endorsements in the future,
regardless of whether there were adequate funds in Playtime’s
account to meet those cheques.
[30] In
sum, Braude acted throughout not on representations from the Bank but
on reassurances from Horne. The Bank’s mistake, viewed
in
hindsight, was to appoint Horne as the manager of one of its
branches. That, in itself, as stated earlier, was not reason enough
for upholding the replication of estoppel. The Court
a quo
was right. The appeal must fail.
[31]
The following order is made:
The appeal is dismissed
with costs including the costs of two counsel.
…………………
..
P
M NIENABER
JUDGE OF APPEAL
Concur
:
ZULMAN
JA
FARLAM
JA
NUGENT JA:
[1] I
have had the privilege of reading the judgment of Nienaber JA in
draft form but I regret that I am unable to agree with the
order that
he proposes. In my view the undertakings that were given by Horne
fell within the scope of the apparent authority that
the bank
represented that she had and Glofinco reasonably relied upon upon
that representation when acting as it did. In my view
the bank is
accordingly bound by Horne’s undertakings and I would uphold the
appeal.
[2] Before turning to the legal questions that are dealt with in the
judgment of Nienaber JA it is necessary to deal with certain
factual
issues that are relevant, first, to the grounds upon which the trial
court dismissed the claim, and secondly, to one of the
grounds upon
which Nienaber JA has concluded that the appeal should be dismissed.
[3] Glofinco’s claim failed in the trial court on the grounds that
Braude was said to have acted unreasonably in relying upon the
bank’s
representation (if there was one) that Horne had authority to bind
the bank. The trial court said that his reliance was
unreasonable
because ‘[he] must have suspected something untoward, and yet went
ahead…’ (at 1067C). Presumably what the trial
court meant was
that Braude must have suspected that Horne was not authorised to act
as she did for otherwise any suspicions that
Braude might have had
would hardly be relevant.
[4] If Braude suspected that Horne was not authorised, but yet went
ahead with the transaction without allaying that suspicion, it
is
trite that the bank would not be bound, because Braude could then not
be said to have relied upon the representation, and the
question of
whether he acted reasonably would not even arise. It would also
mean, however, that Braude acted dishonestly by purporting
to act in
the belief that Horne was authorised, and that a large part of his
evidence was false. I do not think that such a finding
is warranted
by the evidence, nor did the bank suggest that it was. On the
contrary, the bank conceded in the trial court that Braude
had not
acted dishonestly in any way and in argument before us that
concession was repeated. I would be reluctant in those circumstances
to find
mero motu
that Braude acted dishonestly, and that his
evidence is false, particularly when those imputations were never put
to him directly
in the course of the trial (cf.
President of the
Republic of South Africa and Others v South African Rugby Football
Union and Others
2000 (1) SA 1
(CC) par 60-65 at 36H-38C).
[5] It is also improbable, in my view, that Braude suspected that
Horne was unauthorised or that anything else was untoward. The
trial
court inferred that he suspected that something was untoward on two
grounds. First, it was said that he asked repeatedly about
Horne’s
authority thereby indicating that he was concerned about it. That
finding is not supported by the evidence. According
to Braude’s
evidence (and there was none to contradict it) he spoke to Horne
about her authority on only one occasion, which was
immediately
before he discounted the cheques that are now in issue. Until then
he had spoken to Horne on the telephone on several
occasions before
he discounted cheques drawn by Playtime but then only to confirm that
the signatures on the cheques were hers and
to be assured that
Playtime was still in good financial standing. I deal later in this
judgment with what was discussed when he
met Horne for the first time
but for the moment it is sufficient to say that in my view the
evidence relating to that discussion
does not warrant the inference
that he was concerned about her authority. The fact that on three
occasions before then he discounted
eleven cheques amounting to more
than R7 million without once asking about Horne’s authority
supports his assertion that it never
occurred to him for a moment
that she might not be authorised and in my view it is most improbable
that he would have put millions
of rands at risk if he had any
suspicion that his security might be unsound.
[6] The second ground upon which the trial court inferred that Braude
suspected that something was untoward relates to the nature
of the
underlying transaction. If the bank was confident that Playmate
would meet the cheques on due date the question that comes
to mind is
why the bank was not willing to advance money to Playmate itself
instead of guaranteeing cheques that would be discounted
by Glofinco.
By advancing the money itself the bank would not only have earned
interest but it would also have enabled Playtime
to capitalise upon
the substantially lower cost of borrowing. That question indeed
occurred to Braude and he asked it of Horne in
the course of their
discussion. Horne’s reply embodied answers to two different
questions. She said that the bank was in control
of the flow of
funds from substantial international trading that was being
undertaken by Playtime (which would serve to explain why
she was
confident that the cheques would be met) but as to why the bank was
not advancing the funds itself she said no more than
that it was more
convenient to arrange matters in that way. That was indeed no answer
to the question, as pointed out by the trial
court, but the fact that
Horne fobbed Braude off without elaborating upon why it was ‘more
convenient’ to arrange things in that
way does not, in my view,
warrant the inference that Braude then became suspicious. That
inference presupposes that Braude would
have felt it necessary to
persist in his enquiry until he received a proper explanation when in
truth he had no reason to do so.
How the bank conducted its affairs
was was of no direct concern to Braude, whose primary interest was
only that he should be paid.
Braude said that he did not consider
it his business to enquire any further and I see no reason why he
should have done so after
a senior bank manager had brushed aside a
matter that concerned the bank’s affairs. In my view it is only in
retrospect, and with
knowledge of what Horne was actually doing, that
her evasion assumes the significance that the trial court attached to
it. What
must never be lost sight of is that Braude was dealing with
a senior bank manager whom he had no reason to distrust.
[7] In my view it is most improbable that Braude suspected that
something was untoward but yet proceeded to discount the cheques.

One asks when it was that Braude is said to have become suspicious?
If it is said that he became suspicious when he received the
non-commital answer from Horne concerning the transaction then he
would need to have had nerves of steel to have acted as he did.
For
it would then have dawned upon him for the first time that well over
R3 million (the amount of the cheques that were then outstanding)
was
already at considerable risk. Yet far from displaying concern he
promptly discounted further cheques for over R5 million. In
my view
it is most unlikely that he would have done so if he had begun to
suspect that Horne had no authority. If, on the other
hand, it is
said that he suspected from the outset that Horne had no authority
and that the conversation merely heightened his suspicion
it implies
that Braude was willing to repeatedly put millions of rands at risk
merely in the hope that in due course the bank would
be estopped from
repudiating the undertakings. That, too, is most unlikely. As
Braude said, rather wryly but it carries the ring
of truth: ‘It is
not our practice to finalise our deals in a court of law, that
certainly doesn’t appeal to us at all.’
[8] In my view one should not underestimate the capacity that the
trappings of trustworthiness have for allaying suspicion. I see
no
reason to disbelieve Braude’s evidence that he did not suspect for
a moment that he ought to distrust a senior bank manager.
The fact
that he was willing to discount the cheques for millions of rand on
the strength of her signature points strongly to the
truth of his
evidence. For the reasons I have given I respectfully disagree with
the finding of the trial court that Braude must
have suspected that
something was amiss but yet went ahead with the transaction.
[9] Nienaber JA has pointed out (at para 13) that a representation,
in order to found an estoppel, must be rooted in the words or
conduct
of the principal himself and not merely in that of his agent (with
which I respectfully agree, subject to a qualification
that excludes
cases in which the agent has been authorised to make the
representation – see Rabie and Sonnekus:
The Law of Estoppel in
South Africa
2 ed para 2.1.1; Spencer Bower and Turner:
The
Law Relating to Estoppel by Representation
3 ed para 125 –
which did not arise in the
NBS
cases and need not be
considered in this case on the view that I take of the facts). He
is of the view that what caused Braude to
act as he did was, in the
final analysis, not the bank’s representation in appointing Horne
as bank manager but ‘Horne’s representation
to him assuaging his
misgivings about the bank’s ultimate liability’ (para 26). I
regret that I do not agree with that conclusion.
[10] I have already pointed out that before Braude met Horne he
discounted eleven cheques, amounting in total to more than R7 million
rand, on three occasions without once questioning her authority.
He met Horne for the first time immediately before he discounted
the
cheques that are now in issue but even then the purpose of the
meeting was not to question her authority – its purpose was
to have
Horne sign the cheques in Braude’s presence and to have her add a
further clause to the bank’s undertaking. In an affidavit
deposed
to by Braude (which was put to him in the course of
cross-examination) he said that at the same time he ‘had a full
discussion
with her in terms of which [he] questioned her closely
about her credentials as the authorised bank manager’ and that she
‘convinced
[him] that she had the necessary authority’.
Precisely what was meant by Braude, and more important, what was
said, was not explored
in the evidence. The only other evidence in
that regard emerged when he was asked (when he was giving evidence in
chief) whether
he was ‘satisfied with her explanation [of the
transaction] and her credentials’ and he said the following
‘
Yes
I was my lady. She went on to tell me of her 18 years of employ with
the bank. She reiterated to me that she was a senior manager
of the
bank and that she had absolutely no reservation in binding the bank
with this transaction because she felt there was absolutely
no chance
of there being any dishonour.”
[11] Those snippets of evidence suggest that Braude’s enquiries
were directed to establishing what position Horne occupied in the
bank’s hierarchy rather than to whether a person in her position
was authorised to transact the particular business. Indeed, Braude
said (and it was never contested) that at no stage did he ask Horne
whether there was a limit on her authority, which is inconsistent
with the suggestion that his belief in her authority had its source
in what she told him as opposed to the office that she held.
[12] Clearly when Braude discounted the first eleven cheques he
relied for his belief that Horne was authorised solely on the office
that she held (no other potential source of his belief has ever been
suggested). That was a representation made by the bank. Various
tests have been propounded by our courts for determining whether a
subsequent representation might operate to substitute a new causal
event. I do not think it is necessary in the present case to
examine them in detail: their essence is captured by what was said
by
this Court in
Stellenbosch Farmers’ Winery Ltd v Vlachos t/a The
Liquor Den
2001 (3) SA 597
(SCA) at 609E-F :
‘…
the basis for holding liable someone for holding
out something is the image he conjured up which prompted the other
party to react
to his prejudice (cf
Southern Life Association Ltd
v Beyleveld NO
1989 (1) SA 496
(A) at 505F-G); if, due to some
new circumstance, … a new image is superimposed on the old one and
it is the new image to which
the other party responds and on which he
relies, the original party can no longer be held to it, even if he
would otherwise have
remained liable.’
[13] I can find nothing in the evidence to suggest that when Braude
discounted the cheques that are now in issue the initial image
of the
source of Horne’s authority (i.e. that by virtue of her office she
was authorised to act as she did) had been supplanted
by a different
image, nor does the evidence suggest what that new image might have
been. In my view it is plain from the evidence
as a whole that, but
for the fact that Horne was the branch manager, Braude would not have
acted as he did. I do not think that
the evidence establishes that
he acted in response to something in addition and it was never
suggested to him that he did. I turn
then to the questions of law.
[14] I agree with Nienaber JA that the appointment by a bank of a
branch manager implies a representation to the outside world but
I
see the nature of that representation a little differently. By
establishing branches for the conduct of its business the bank
represents to the public at large that the bank conducts its ordinary
business from those branches and that its manager is authorised
to
conduct that business on its behalf. No doubt there are generally
internal limitations placed upon the authority of the manager
(as
there were in this case) but as pointed out by Nienaber JA those
limitations are immaterial if they are not brought to the notice
of
the public. Members of the public are thus entitled to assume, when
they transact business at the branch which is of the kind
that falls
within the scope of the ordinary business of the bank, that they are
dealing with the bank and not with an unauthorised
third party. In
South African Eagle Insurance Co. Ltd v NBS Bank Limited
2002
(1) SA 560
(SCA) Marais JA expressed it as follows at 575C-D:
‘
It is sufficient for successful invocation of the
doctrine [of estoppel] that the conduct of the principal was such as
to entitle
the party concerned to believe that the person purporting
to act on the principal’s behalf was authorised to transact a
contract
of the kind in question’
(emphasis added).
In
Freeman & Lockyer (a firm) v Buckhurst Park Properties
(Mangal) Ltd and Another
1964 (2) QB 480
(CA), which is the
leading case in England on the topic, Diplock LJ expressed the
principle as follows at 503-4:
‘
The representation which creates “apparent”
authority may take a variety of forms of which the commonest is
representation by
conduct, that is, by permitting the agent to act in
some way in the conduct of the principal’s business with other
persons. By
so doing the principal represents to anyone who becomes
aware that the agent is so acting that the agent has authority to
enter on
behalf of the principal into contracts with other persons
of
the kind
which an agent so acting in the conduct of his
principal’s business has usually “actual” authority to enter
into’ (emphasis
added).
[15] In my view that does not mean that the principal is bound only
if the disputed contract is one that the bank would ordinarily
have
entered into. If that were so it would imply that a principal is
bound only if the contract is one that he would be willing
to ratify,
which quite undermines the principles underlying estoppel and is
manifestly not the case. As pointed out in
Bowstead and Reynolds
on Agency
17 ed par 8-064 a principal is bound by his agent’s
apparent authority even where the agent was acting fraudulently and
in his own
interests and indeed the claims in the two
NBS
cases
referred to by Nienaber JA ought to have failed if that was the law.
The question to be asked in each case, in my view, is
not whether
the principal would ordinarily have concluded the disputed contract,
but rather whether the contract is of a kind that
falls within the
scope of the principal’s ordinary business. In my view it is not
open to a motor vehicle dealer whose ordinary
business is to buy and
sell vehicles to say that ordinarily he only purchases vehicles that
are in peak condition, or that he ordinarily
only sells them if he
can do so without making a loss, and that contracts by his manager
which do not meet those conditions are therefor
not binding upon him.
Nor, in my view, is it open to a bank to say that although it falls
within the scope of its ordinary business
to guarantee its customers’
cheques it ordinarily does not do so in circumstances which place it
at financial risk, and thus it
is not bound if its manager does so in
such circumstances. Estoppel is concerned with appearances and not
with idiosyncratic reservations.
The public know what kind of
business is undertaken by a bank and they are entitled to feel safe
when they undertake business of
that kind with a bank manager. They
are not to know in what circumstances the bank considers it to be
commercially desirable or
beneficial to undertake a particular
contract, or what will be inimical to its interests, and in my view
they are not called upon
to enquire. Members of the public who deal
with a bank manager are entitled to assume that he knows what he is
doing when he transacts
business of the kind that one transacts with
a bank. If in truth the transaction would not ordinarily have been
concluded by the
bank and was concluded only because its appointed
agent went beyond his authority I can see no reason why the loss
should fall upon
the innocent party who was ignorant of that fact and
in my view that is what estoppel sets out to avoid.
[16] I accept that in this case the bank would not ordinarily have
guaranteed Playtime’s cheques, not least of all because, as
it
turns out, Playtime was not financially sound. As pointed out by
Nienaber JA the transaction was indeed inimical to the bank’s
financial and commercial interest but I cannot see why Glofinco,
which did not know that, should end up paying the price. I do not
agree, however, that the transaction was not an ordinary or routine
one. The transaction itself was both ordinary and routine –
it was
no more than an undertaking to guarantee payment of a cheque – what
was out of the ordinary was that the undertaking was
given in
circumstances in which the bank would ordinarily not have done so
because it exposed the bank to unacceptable risk. But
that does not
mean that the transaction is not of a kind that falls within its
ordinary business. In my view it is the nature of
the transaction,
rather than the circumstances in which the bank is willing to enter
into it, that defines whether it falls within
the scope of its
business.
[17] There will no doubt be cases in which the circumstances in which
the transaction is concluded are such that they will alert
the
representee to the fact that, notwithstranding appearances, the
manager must necessarily be acting outside his authority, or
in which
the representee ought reasonably to have been alerted, but then the
claim will fail on other grounds. I have already said
that in my
view the circumstances of the present case did not alert Braude to
the fact that Braude was acting outside her authorty,
and I will deal
later with the question whther he ought reasonably to have been
alerted.
[18] The contracts that are in issue in this appeal are no more than
undertakings, purporting to have been given by the bank, to
pay the
respective holders of the cheques if the cheques are dishonoured by
the bank’s customer, who was the drawer of the cheques.
They
served, in effect if not in form, to guarantee payment by the bank’s
customer of future financial obligations. In my view
courts are
well aware, from the cases that come before them, that undertakings
of that kind fall within the scope of ordinary banking
business.
Moreover if evidence to that effect were to be required in my view it
is present in this case. Braude said that on numerous
occasions in
the past cheques had been guaranteed for him by bank managers and he
regarded it as standard practice, and that evidence
was not even
challenged. Strang deposed to an affidavit in the proceedings, which
he must be taken to have adopted in the course
of his evidence, from
which it is clear that undertaking liability as surety for a customer
falls within the scope of a banker’s
business. It is not
surprising that Scholtz, who was the only witness called by the bank,
did not suggest otherwise. It is implicit
in his evidence that
undertakings of this kind fell within the scope of the bank’s
business: his concern was only that Horne exceeded
the internal limit
that had been placed on her authority. In my view the undertakings
fell within the terms of the bank’s representation
and the only
remaining question is whether Braude acted reasonably in relying upon
it.
[19] When a representation has been made that can reasonably be
expected to mislead (as it was in this case) it ought to follow that
a person who relies upon it will ordinarily be acting reasonably in
doing so. The requirement that the reliance must be reasonable
thus
mirrors to a large extent the requirement that the representation
must be one that is reasonably capable of misleading (see
Spencer
Bower & Turner :
Estoppel by Representation, supra,
cf
paras 98 and 102). Nonetheless, I have already expressed the view
that the circumstances in which the representee acted might
be such
that he ought reasonably to have realised that the agent lacked
authority and if that is so the principal will not be bound.

Earlier in this judgment I pointed out that the only ground upon
which the trial court held that Braude did not act reasonably
was
that he was said to have suspected that something was untoward, a
factual finding with which I do not agree. I have nevertheless
considered whether the circumstances in which Horne gave the
undertakings were such that Braude ought reasonably to have realised
that she was not authorised notwithstanding that her undertakings
fell within the scope of the bank’s ordinary business.
[20] The suggestion in that regard was that Braude should
reasonably have engaged in a process of reasoning that would have
driven
him to the conclusion that Horne was not authorised and that
Horne’s failure to provide a proper explanation to him ought to
have
sparked that process. A little more than a century ago, in
Frederick Bloomenthal v James Ford (the Liquidator of Veuve
Monnier et ses Fils, Limited)
1897 AC 156
(HL) at 168, Lord
Herschell said the following in relation to a similar submission:
‘
It is said that he is
under this liability, and that the law of estoppel does not apply,
because if he had thought the matter out,
if he had put two and two
together, if he had reflected on the circumstances, he would have
seen and must have seen that the shares
were not fully paid up. My
Lords, I cannot myself think that, where an unequivocal statement is
made by one party to another of
a particular fact, the party who made
that statement can get rid of the estoppel which arises from another
man acting upon it by
saying that if the person to whom he made the
statement had reflected and thought all about it he would have come
to see that it
could not be true. Of course, if the person to whom
the statement was made did not believe it, and did not act on the
belief induced
by it, there is no estoppel. But supposing he did
believe it and did act on the belief induced by it, then it seems to
me you do
not get rid of the estoppel by saying, "If you had
thought more about it you would have seen it was not true". The
very
person who makes a statement of that sort has put the other
party off making further inquiry. He has produced on his mind an
impression
as a result of which further inquiry is thought to be
unnecessary or useless. Therefore I confess I do not think that it
is legitimate
to speculate what is the conclusion at which a man
would have arrived if he had put together - pieced together - all the
considerations
that might have occurred to a reflective mind
cogitating on the whole subject, and then to say that because he
would have come to
the conclusion that the statement made to him
could not have been true, he is not entitled to act upon it as if it
had been true,
when in point of fact he did not enter into those
considerations, but did believe it and did act upon it.’
[21] I share the view that the maker of a representation that can
reasonably be expected to mislead should not be heard to say of
a
person who relied upon it that if he had only put two and two
together he would not have been misled. In the present case I am
furthermore of the view that it was not unreasonable for Braude not
to have followed that train of thought. There were indeed unusual
features of the underlying transactions, as pointed out by Nienaber
JA, concerning the relationship between the bank and its customer
but
I do not think that Braude should reasonably be expected to have
enquired further into that relationship once Horne had brushed
it
aside. The business relationship between the bank and its customer
was of no direct concern to Braude, whose concern was only
to ensure
that he was paid, and nothing had occurred to arouse his suspicions.
[22] Perhaps it needs to be emphasised again that Braude was
dealing with a senior bank manager. Braude said that if he knew then
what he now knows he might have questioned Horne’s authority but at
that time he had absolutely no reason to do so – in his many
years
of dealing with banks he had never come across a case in which a bank
had repudiated the authority of its manager. That it
should turn out
when the transactions are analysed in retrospect that they bear the
fingerprints of fraud is hardly surprising but
I do not think Braude
can be faulted for not having seen them earlier. I do not think it
is unreasonable for a member of the public,
when dealing with the
affairs of a bank, to trust the word of a bank manager, which is what
Braude did. What is surprising is only
that a bank should submit
that it was.
For those reasons I would uphold the appeal.
NUGENT JA
SCHUTZ JA: concurs